BY JOEL OSNOSS
Some points to ponder in the IFRS debate
In February, the SecurItIeS and exchange commission issued a commission Statement in which it made it
clear that it believed that a single set of high-quality globally
accepted accounting standards would benefit u.S investors,
and in which it directed its staff to execute a workplan to help
evaluate the impact IFrS might have on the securities market.
In the wake of the Sec’s increased activity around IFrS, the
volume of debate surrounding the potential adoption of IFrS
in the u.S. has increased. The following discussion provides
considerations regarding 10 of the more common sentiments
about IFrS that have been made in the debate.
1. It’s better to simply continue to “converge” standards.
While convergence has been helpful in terms of narrowing
differences between IFrS and u.S. gaaP, the resulting standards are not identical and raise questions about how far the
convergence process will take us. recent events have highlighted the arbitrage resulting from differences between IFrS
and u.S. gaaP. unless the standards are identical, which is
not the goal of convergence, the door will remain open for
2. There really isn’t one version of IFRS used globally.
While processes for endorsement of new IFrS in some jurisdictions may be troubling, there has been increasing pressure on many jurisdictions to conform to full IFrS. In their
public comments, members of the International accounting
Standards board have been outspoken against some local
jurisdictions using the “IFrS” name in characterizing their
local standards, which are not completely compliant with
“full” IFrS. In addition, the Sec has been clear regarding its
desire to have a single set of standards — not variations. This
was evident in the Sec rule eliminating the requirement to
reconcile to u.S. gaaP for foreign private issuers that use
IFrS, as published by the International accounting Standards
board. Issuers using a variation of IFrS would not qualify for
3. IFRS provides too much flexibility and not enough
comparability. many critics associate comparability with
uniformity. however, many believe that the focus should be
on “transparency” and not necessarily “uniformity.” moody’s
Investor Services, one of the largest credit-rating agencies, in
a 2008 commentary, noted that IFrS has brought more comprehensive reporting globally, including better information
on pensions, leases, and disclosures about judgments used
(revenues and provisions). The moody’s commentary also
noted that IFrS better reflects the economics of transactions,
Joel Osnoss is a partner with Deloitte & Touche and leader
of Deloitte’s Global IFRS and Offerings Services Group. This
article contains general information only and Deloitte is not,
by means of this article, rendering accounting, business,
financial, investment, legal, tax, or other professional advice
including financing transactions, minority interests, put options, depreciation, revenues, and consolidation policy.
4. IFRS is not comprehensive and needs improvement.
The insurance and extractive industries are often cited as industries where u.S. gaaP guidance exists and IFrS is lacking.
however, there actually are “temporary” standards relating to
insurance contracts (IFrS 4) and extractive industries (IFrS
6). For the most part, u.S. issuers would be able to continue
to use gaaP for these areas until the IaSb completes the subsequent phase of these projects.
more generally, there are few areas where fundamental differences continue to exist (e.g., impairment and intangibles).
These are areas where IFrS is often viewed as more reflective
of the underlying economics. In addition, in many of the areas
where IFrS is criticized as needing improvement, gaaP is
also criticized (e.g., revenue recognition and financial statement presentation).
5. The detailed guidance in GAAP provides for greater
rigor in application and better information for users. While
IFrS in its current form has only been applied since 2005,
many of the standards are based on gaaP, so some of the
expected practice issues have been anticipated and dealt with
in a manner that is consistent with gaaP. critics also typically associate more detailed guidance with increased rigor
in financial reporting. This association has not necessarily
proven to be true, as overly detailed guidance sometimes
results in artificial accounting outcomes that may not reflect
the underlying economics of transactions and events.
6. There is no global enforcement mechanism to enforce
IFRS. today, the world’s regulators are working much more
closely together than was the case just a few years ago. For example, the Sec has a work plan with european union regulators to address differences in interpretation and application
of IFrS. Furthermore, in the u.S., the Sec will continue to
enforce the applicable accounting and reporting standards
used, whether u.S. gaaP or IFrS is in place.
7. Investor protection will be weakened by IFRS adoption. The Sec will have a strong voice in the oversight of the
standard-setting organization, consistent with its investor
protection mandate, and ultimately the Sec will continue
as the legal standard-setter with the right to “veto” any standards for u.S. reporting purposes. In addition, there may
be a possible role for the Financial accounting Standards
board in a post-IFrS environment, possibly as an “endorser”
and/or liaison to the IaSb on issues.
8. The IASB is not a sufficiently independent standard-
setter. The independence of the IaSb has been questioned
in light of certain issues relating to the global financial crisis.
In many respects, the events that had led to these criticisms
highlight the arbitrage that exists in terms of the standards-
setting process and differences in standards. The movement
to a single global set of accounting standards would elimi-
nate accounting arbitrage between standards that should
lessen the potential for political interference in the standard-
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